There are two ways to analyse stocks - Technical Analysis and Fundamental Analysis.

Technical analysis applies several statistical techniques to forecast a given share price at some time in the future. This is achieved through the use of time series analysis (those who have studied Econometrics will have some experience with this). One of the pitfalls of Technical Analysis is that it gives no regard to the future state of the security itself, rather there is an attempt to estimate a future share price based on past performance.

The second method is Fundamental Analysis. This involves a fair bit more work as it actually involves drilling down in to the company's financial statements to work out the past performance of the company. Again, you'll typically rely on past performance in order to estimate future performance, and using the numbers you've pulled from past financial statements you will value the company using one or more of the many valuation methods out there (run a search in FINSOC Questions for "valuation" to find out more).

So, what is the best way to invest in stocks? Well, the jury is still out on that one, but many analysts use a combination of Technical and Fundamental analysis, alongside a "gut feeling".

Why a gut feeling, you may ask? Have a look at any disclaimer on any financial services firm's website, and you'll find the words "Past performance is not necessarily indicative of future performance."

Another pitfall of technical analysis that can be noted, is that it does not work if the efficient-market hypothesis holds true. In simple terms, this hypothesis means that the current price of a security already reflects the information contained in the record of past prices - so you won't really glean anything from looking at past prices (according to the hypothesis). See http://en.wikipedia.org/wiki/Efficient-market_hypothesis for a good starting point to explore - there are plenty of references and links! But remember, a hypothesis is just that and it is far from settled that it is correct.

This is not a simple question at all. A good place to begin is to narrow down your potential watchlist to as small a size as possible (ie say 5 stocks, maybe even just 3). There is no point trying to analyse a large number of companies to invest in as a novice because you will not have the time and the expertize to investigate any of them in any level of depth.

Also it is generally a known fact that making large sums of money by investing in stocks is not as easy as it sounds and to remember the market is generally against you (commissions when money supply is fixed in short term, only an increase in demand for stocks will drive wealth). Therefore it is always wise to be as risk adverse as you possibly can and to make sure you research the company as deeply as possible BEFORE not AFTER a purchase. (* and certainly after aswell to find a potential exit strategy)

A good and brief guide to isolate the good and bad stocks are the following questions: "how well has the company been performing lately?", "has the price reflected its performance?", "how big is its market and what seperates this company with its competitors? Does it have a competitive advantage? Is this sustainable?", "does the company have little or no debt and is its ROE growing?", "how is the company paying dividends? Is it paying too much? (paying too much dividends for a company of high levels of growth is a bad business decision and reduces value)".

Nobody can accurately predict how the price of the company will react in the short term (technical analysts think otherwise) but those questions will go a long way in helping you seperate potential investment worthy stocks and avoidable stocks in your own mindset. Just remember that there is generally no free lunch in society and large levels of research and reading is required before making any decision.